Penalties for undervalued property

[kursaalflyer]

Wonder if someone would be able to give me an indication of how much the penalty would be for unknowingly having a property undervalued for probate.
My cousin died in March and I had four valuations done on the property in April and the executor submitted 340k as the average of all four. This week the District Valuer has said that the valuation is way under and should be in the region of 400 - 450k. He has come back to us with a revised figure of 395k based on my description of the condition of the property. The discrepancy occurred because I was unaware the valuation had to be assessed on the date of death and that was a few days before lockdown. During lockdown when the valuations were done the market was unsteady so valuations were under what they probably had been in March. This was an error on my part as the executor just said get the house valued and it never occurred to me that the date was important. I told the estate agents at the time it was for probate and no one asked the date of death. We have obviously been helpful to the district valuer but I've been reading up on undervaluing property and it seems like a penalty will be imposed. As it wasn't a deliberate attempt to undervalue will this be taken into consideration? A ball-park figure would be helpful. Thanks for any help.

We had an issue with my father’s estate. The valuer undervalued his property because he thought there was an agricultural tie on it which typically reduces a property’s value by 30%. The valuation put us under the threshold for IHT and no tax was paid. Over 10 years later we discovered his error. It was quite a niche property and the sale price was inflated because there were 2 buyers who wanted it, so CGT was also an issue. Our solicitor had no idea what to do and whether HMRC would penalise us.
In the end I wrote to HMRC setting out the history suggesting that they leave the probate valuation as and collect CGT from the beneficiaries because it would be very difficult to get an accurate valuation because of the passage of time and nature of the property. They accepted my suggestion without any further discussion.
Your situation is different of course but my experience of HMRC was that if you are honest and straightforward with them, they will treat you fairly. It sounds like an honest mistake has been made in your case, so I suggest the executor explains the position the position to them ASAP. It’s less than a year since all this started, so I would be hopeful that there will be no penalties. Good luck!

Thank you for replying. Yes, we are hoping that being honest and upfront about it will minimise any penalty payment. What a minefield for you! And such a worry. It seems like it's never really over.

I would be surprised if any penalty was charged - the estate will need to pay interest from the date the IHT was due (death in March - would be due end of September).

@Arewethereyet21 we agreed a new valuation of 390k over a week ago, the executor paid the extra IHT and two days later probate was granted. If any penalties/extra interest were going to be applied would we have been notified before this happened?

I would have thought that the interest would have been paid on that sum in order to have probate granted - the interest rate is currently 2.6% on IHT so certainly not punitive. They may still come back with further queries or penalties but as I said, I would be surprised. It’s unusual to get 4 valuations and take the average - did you use an estate agent rather than a chartered surveyor?

Normal practice would be to get a chartered surveyor to do an open market valuation and submit that - not get 4 and use the average (cost would be prohibitive which is why I’m wondering if you have asked estate agents for a valuation). These can often be quite a bit lower than a valuation from a chartered surveyor.

The executor asked me to get three or four valuations from different estate agents and then took the average. We never thought of a chartered surveyor.